Upcoming budget: Income tax exemption up to Rs 3 lakh

Financial experts and the general public expect Finance Minister Nirmala Sitharaman will increase the Income Tax deduction under Section 80C of the Income Tax up to Rs 3 lakh in the upcoming Budget to be announced on 1st February 2021.

Presently, under Section 80C, a deduction leading up to Rs 1.5 lakh can be claimed for investments made in various instruments like PPF, five-year banks FDs, Provident Funds, Life insurance premium paid etc.

Ankit Sehra, Founder and Tax Expert, Ankit Sehra & Associates, said, “It is expected from upcoming budget 2021 that there should be an increase in the deduction limit of section 80C from Rs 1,50,000 to 3,00,000 p.a.” He continued to say, “This will boost more investment and eventually lead to the overall development of the country.”

Sehra wishes that this time the government will have a clear distinction between Long term and Short-term savings. He said that currently there is no major support in the tax policy to encourage long term savings, which is a need of this pandemic cycle.

He said, “Life insurance and Pension funds are a major source of savings for long term purposes. This time we can expect that the government would consider the separate exemption limit for both of them apart from section 80C.”

In its Budget 2021 preview, Yes Securities anticipates a surge in Section 80C limit to Rs 2.5 lakh.

Yes Securities said, “Govt has already unleashed a slew of measures to prop the supply side of the equation. On-demand side, it is imperative to augment the disposable income of households, which will recalibrate the economic equilibrium.” The company is also presuming favourable policies to boost the real estate demand, including an increase in the exemption for principal repayment on home loans. Yes Securities awaits that exemption for principal repayment on home loans should match the HRA limits for salaried class.

General taxpayers are wishing for personal tax relief in the budget. In a survey by FICCI and Dhruva Advisors, almost 40% of the participants felt that ‘personal tax relief’ should be the primary focus of direct tax proposals in this year’s budget.

In addition, approximately 47% of the respondents said that their biggest demand from the government in respect of direct tax is ‘widening of the tax slab’.

The Union Budget is used as an instance by the Government to propose measures for simplifying the taxation system and making compliance easier. The survey participants were asked to underline their current pain points from the taxation perspective and how the Government could support them. Results show that ‘timely receipt of refunds’ was the predominant challenge against as many as 52% of the respondents. This was closely followed by ‘tax compliances’ and ‘tax litigation’ with 49% and 43% of the respondents respectively reporting the same.

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